Financing Constraints, Credit, Rationing, and Financing Obstacles: Evidence from Firm Level Data in South Eastern Europe

The transformation of the banking sector in transition economies has been one of the most dynamic and challenging aspects of the transition process. Reforms in South East European (SEE) countries were long delayed, especially in the first decade of transition. The banking sector was relatively inefficient, with a weak supervisory capacity, and old lending practices paved the way on many occasions for severe crisis and low levels of financial intermediation (Anderson and Kegels, 1998). In the second decade of transition, however, the banking sector in SEE underwent a fundamental restructuring and consolidation. Reforms of the macroeconomic environment and institutions of a market economy were undertaken, which promoted stability and the prospect of financial deepening. Notwithstanding the progress made, the level of banking sector credit to enterprises in transition economies in general and SEE in particular has not reached that of countries with comparable levels of economic development (EBRD, 2006). This is because banks have imposed credit rationing on creditworthy enterprises for a variety of reasons: inefficiencies in the banks themselves, information asymmetry between borrowers and banks, poorly functioning institutions such as the rule of law, and other institutional and market failures. These concepts are well grounded in the theoretical literature of the last three decades (Stiglitz and Weiss, 1981; Fazzari et al., 1988; and others). Credit rationing of creditworthy firms has important adverse implications for the growth of firms and the whole economy. Hence, it is important to investigate this phenomenon in the context of SEE countries, where the evidence to date is scarce.